Big Tech layoffs and hiring freezes spark recession fears

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Big Tech prepares for an economic downturn and an uncertain future. That, in turn, is causing further economic distress.

The biggest tech firms, most of which report quarterly earnings next week, have offered recent signs that they are digging in. News of layoffs and hiring slowdowns have become commonplace across Silicon Valley. Startups say capital is running out. Workers are warned that companies are changing.

Meanwhile, Twitter’s long-running bad romance with Elon Musk is tangled up in court and the outcome is uncertain, a point the company made when it reported disappointing numbers on Friday. Amazon is facing a growing labor movement and Facebook is facing a new advertising climate. Regulators at home and abroad are threatening to crack down on the industry as a whole.

The labor market begins to show cracks

Shares of social media company Snap fell nearly 40 percent on Friday, a day after it reported worse-than-expected revenue growth and declined to give a future earnings prediction due to “uncertainties related to the global environment.” operative”. This week, Netflix reiterated factors such as the “slow growth of the economy” as it lost subscribers.

And analysts predict that next week’s numbers released by Amazon, Microsoft, Google, Facebook and Apple could be the clearest sign yet of how these companies will approach the coming months. Already this week, Bloomberg reported a slowdown in hiring and spending at Apple, a gauge of how much consumers are willing to spend, news that helped drive major stock indexes lower.

“The market looks at that and basically the logic is, ‘Oh shit, if they’re doing this, what about the ones that aren’t that strong?’ said Tom Essaye, president of Sevens Report Research. “’And what are they seeing coming that everyone else doesn’t see?’ ”

Meta spokesman Tracy Clayton said the company would continue to make changes to some parts of its business due to the broader economic environment. Apple and Amazon did not respond to requests for comment. Google, Twitter and Snap declined to comment. Amazon founder Jeff Bezos owns The Washington Post.

Tech’s hiring freezes and dovish predictions stand in stark contrast to the companies’ traditionally bulletproof reputation for unfettered growth, raising concerns from some Wall Street economists and investors. Over the past decade, tech companies have exploded, hiring tens of thousands of workers and amassing huge cash reserves through ever-increasing profits. Share prices of companies like Amazon, Microsoft, Apple and Google continued to rise, dominating stock markets and making many investors rich.

As some of the world’s most valuable companies, they also wield a huge influence on perceptions of the economy, in part due to the click-based nature of their business, which is based on consumer spending. Any drop in demand for toilet paper sold by Amazon, Teslas or iPhones, as well as fewer ads bought on Instagram or Google search to try to sell people new shoes or headphones, is sure to create jitters in other spheres.

Tech has been signaling investors for months that boom times are ending: Amazon was one of the first tech giants to warn earlier this year that it had hired too many warehouse workers and overbuilt in anticipation of higher demand. of customers which instead began to decline as coronavirus lockdowns were lifted and habits changed out of pandemic modes.

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Tesla reported better-than-expected earnings on Wednesday, but even during that call, analysts grilled CEO Elon Musk and other executives on the subject of a potential economic downturn. Musk said earlier this summer that he had a “super bad feeling” about the economy and expected the automaker to cut its salaried workers by 10 percent.

“We need to be more entrepreneurial, work with greater urgency, sharper focus and hungrier than we have shown on the sunniest of days,” Sundar Pichai, CEO of Google parent Alphabet, said in a memo to employees Tuesday. last week. The company will slow its hiring frenzy and new hires will focus on engineering and other technical roles, he said. “Making the company more efficient depends on all of us.”

Earlier this year, Facebook first reported a decline in daily users, which combined with heightened competition, a lower revenue forecast and advertising business hurdles sent its stock prices plummeting. Shares of the company are now down 50 percent for the year. And last week, Facebook told its engineering managers to weed out underperforming employees in the face of a recession. “If a direct report is stagnating or underperforming, that’s not what we need; they are failing this company,” the company’s chief engineer wrote in a memo.

Microsoft recently removed job listings available online, Bloomberg reported.

It may become a self-fulfilling prophecy, market experts say, if other companies immediately react to Big Tech’s crackdown by curtailing their own businesses. But the moves aren’t easy: Many feel the tech is bracing for an economic downturn, not panicking because of plummeting business metrics.

“There are some who see it as a positive because companies are becoming more disciplined,” said Kristina Hooper, chief global market strategist at Invesco.

Mixed messages on the economy raise questions about recession risks

Big Tech was also more successful during the pandemic than many industries, giving them more room to fall.

“It didn’t lose as much labor during the pandemic, so it didn’t have the same shortage,” said Harvard economics professor Jason Furman. “So, in a way, it’s not a surprise that since it looks like the economy is headed for a tougher stage, they need to recalibrate.”

And, despite the poor numbers widely expected for next week, many of the companies have already lowered expectations so much that earnings may not be as bad as feared, analysts said.

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Smaller tech companies have been sounding the alarm for months, with new venture capital investments slowing and many startups announcing layoffs during the spring and early summer.

Other economic indicators are giving a mixed picture of where exactly the economy is headed. Americans are pessimistic about high prices, but they keep spending their money. The pace of new hires is not as fast as it was a few months ago, but it is still far from disappearing completely. Some economists and financial analysts are still predicting a recession later this year or in 2023, though that doesn’t mean it will be as painful as the one that followed the 2008 financial crisis.

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Some of the cutbacks in the tech industry have been a long time coming, with new investment funds available too freely for so long that some companies filled up on resources they didn’t necessarily need, said Doug Clinton, managing partner at the firm. investment in Loup technology. Business

“When the world changes and capital gets tighter, everyone looks and says, ‘Maybe we don’t need as big of a staff as we thought,’” Clinton said. “We were in the boom times, now we’re going down the roller coaster to harder times.”

Kelsea Cozad, a marketing worker in Columbus, Ohio, was fired this month when health-tech startup Olive cut hundreds of employees, after admitting its “accelerated growth and lack of focus” had put her to the test. the business.

Cozad immediately canvassed for a new job and said he’s had a good response. “There are a lot of people who are swimming in the waters, looking to hire,” he added.

Throughout the economy, job openings are largely holding steady, according to data from Indeed, a job posting website. But software development job postings are down more than 12 percent in the last four weeks alone, according to an analysis by Indeed economist AnnElizabeth Konkel. The overall job market is strong, but demand for tech workers specifically is slowing slightly, she said.

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Overall hiring fell to its lowest rate since December 2021, LinkedIn economist Guy Berger wrote, “suggesting that tighter financial conditions and weaker demand may finally be weighing on the US labor market.” Technology was especially hard hit, he noted.

Big Tech has been “spending money like drunken sailors in terms of hiring in recent years,” said Dan Ives, an analyst at Wedbush. “I see it more as a correction, an adjustment in the edges.”

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